Why companies need robust whistleblowing procedures

In a two-part feature, Marianna Fotaki, Professor of Business Ethics at Warwick Business School, speaks up and speaks out on the topic of whistleblowing, a system particular to Anglo-Saxon ethics and compliance procedure.

In May 2018, Jes Staley, CEO of Barclays, the multinational investment bank and financial services firm, was fined by the Financial Conduct Authority and Prudential Regulation Authority for actions that risked undermining confidence in the company’s whistleblowing procedures.

His behaviour was held to have fallen short of “the standard of due skill, care and diligence expected”. He also repaid a substantial part of his bonus, while Barclays was required to provide details of its whistleblowing procedures to the regulators on an annual basis. The incident showed that, despite measures taken by regulators in recent years and the procedures adopted by organisations, implementing effective speak-up procedures remains a challenge for many organisations. And it is not just in financial services, or indeed in business, but across a range of activities conducted by private and public sector organisations, from healthcare to engineering, start-ups to governments.

Over the last five years, together with research colleagues Kate Kenny and Wim Vandekerckhove, I have worked on a series of projects related to whistleblowing, studying its benefits, the plight of whistleblowers, efficacy of speak-up processes and many other facets of whistleblowing.

Most recently, following extensive research in a number of large organisations, some multinational, both in the public and private sectors, we have developed evidence-based guidelines and recommendations that senior managers, HR professionals, and compliance officers can use to design and implement effective speak-up arrangements.

What are the benefits of whistleblowers speaking up?

Before discussing these recommendations further it is worth noting the reason that whistleblowing is encouraged and protected in many jurisdictions is that it is considered to be beneficial for organisations and society.

Without protection, the fate of the whistleblower is, all too frequently, to be actively silenced, discouraged and vilified, and to suffer harm both economically and to their physical and mental well-being. Indeed, we might be better served by avoiding the emotive, mildly pejorative term “whistleblowing” and instead using a less stigmatising alternative such as “raising concerns”, or “speaking up”.

Whistleblowers, in the main, are not narcissistic attention-seekers, betraying their colleagues. Instead, our research shows that they tend to be people who have a regulatory obligation to report, or feel a strong duty to the norms of their profession. They act out of a desire to stop wrongdoing and prevent it from recurring. And they do so often with great concern about whether their actions will harm their colleagues, or the image of the organisation that they want to protect.

As for organisations, they should not fear whistleblowers. There are many incentives for setting up robust whistleblowing procedures. For example, raising concerns helps to identify wrongdoing in organisations, something that organisations seem to find difficult, even when wrongdoing is systemic.

Nor is it sensible for organisations to signal that turning a blind eye to wrongdoing is appropriate behaviour. Tolerance of organisational wrongdoing and cover-ups can even translate into a mistrust of democratic and other important institutions. And, if trouble is stored up over time, when wrongdoing finally comes to light the damage is often far greater than if it is detected earlier. It can result in financial damage in the form of lost revenues and falling share price, in addition to the costs of fixing the problem.

Research from 2012 shows that 40 per cent of 5,000 firms studied had suffered from serious economic crimes resulting in an average of more than $3 million each in losses. While the 2017-18 Global Fraud and Risk Report by global risk consultants, Kroll, shows that insiders were the main perpetrators of fraud and whistleblowers, rather than internal audit or management, were the most effective means of uncovering fraud, exposing 47 per cent of fraud incidents.

While at a basic level, adopting robust procedures can enable organisations to avoid the reputational damage that accompanies a situation where a whistleblower feels ignored by management and compelled to take a matter public. It should also reduce the prospects of the whistleblower suffering damaging repercussions. Some might argue that sufficient legislation and regulations are in place to protect whistleblowers in many countries. But evidence, including our own observations, suggests that legislation is failing to protect whistleblowers adequately and is not being translated into appropriate practices within organisations.

The barriers to adequate protection of whistleblowers are many. Senior managers complicit in or at least indifferent to wrongdoing, toxic organisational cultures, visibly poor treatment of whistleblowers, a lack of action or change after raising concerns, these are all deterrents to speaking up. Organisations need to go beyond paying lip service to the notion of enabling and protecting whistleblowing and implement genuinely effective speaking up arrangements. In our paper Designing and Implementing Effective Speak-up Arrangements we set out 12 recommendations to help organisations do this. It is worth highlighting some of the key themes that underpin our recommendations, in particular – channels and access, responsiveness and feedback, and trust and transparency.

The Council on Business & Society Global Allianceis an international alliance between four of the world’s leading business schools and an organiser of Forums focusing on issues at the crossroads of business and society – The Council Communityhelps bring together business leaders, academics, policy-makers, students and journalists from around the world. Follow us on Twitter @_The_CoBS . Visit the Council’s website for a host of information, learning opportunities, and free downloads.